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Fed raises interest rates by 0.25 percentage points

From NAM’s Shopfloor Blog

Media coverage of the Federal Reserve’s decision to raise interest rates for the first time in nearly a decade was wide spread, with much of the coverage presenting the move as a milestone in the economy’s recovery from the Great Recession.

The New York Times (12/17, Appelbaum, Subscription Publication), calls the Fed’s “widely anticipated decision” a “vote of confidence in the strength of the American economy at a time when much of the rest of the global economy is struggling,” adding that it is “the most important and riskiest decision the Fed has made under the leadership” of Chairwoman Janet Yellen.

USA Today(12/17, Davidson) says the move marks “a historic milestone” in the nation’s recovery. In “a nod to inflation that remains unusually low and vestiges of the downturn that continue to thwart a more vibrant economy,” Fed policymakers signaled that they “intend to nudge up rates even more gradually than anticipated the next few years.”

In a Wall Street Journal (12/17, Davidson) piece highlighting reactions of economist to the Fed’s action, NAM chief economist Chad Moutray is quoted as saying “In taking today’s actions, the Federal Reserve has recognized significant improvements in the U.S. economy, and manufacturers recognize that economic conditions today are far better than they were in recent years.”

However, Moutray adds that “manufacturers continue to feel anxiety in the face of headwinds like the strong dollar and weaker growth in key international markets. In the latest NAM Manufacturers’ Outlook Survey, manufacturers indicated a preference for the Federal Open Market Committee to wait until these headwinds die down a bit before beginning the process of raising short-term interest rates.” The Business Journals (12/17, Hoover) also highlights Moutray’s remarks.

A separate Wall Street Journal (12/17, Hilsenrath, Leubsdorf, Subscription Publication) article cites new projections that show officials expect the benchmark rate to rise to 1.375% by the end of 2016, 2.375% by the end of 2017, and 3.25% in three years, which would mean four quarter-percentage-point interest rate increases next year, four the year after, and three or four the year after that.

McClatchy (12/17, Hall) notes that moving forward, “it will be gradually more expensive for ordinary Americans to carry debt on a credit card, cost more to borrow to take out a car loan, and even raise the price of getting a mortgage for a new home.”

The Washington Post (12/17, Mui) says that while the move is “small,” it “amounts to a vote of confidence that the American economy – dogged by volatile oil prices, a slowdown in China and weak global growth – will stand resilient.” However, the Fed “pledged to wean the nation off its stimulus slowly, an acknowledgment that further progress is not guaranteed and that the central bank is operating in uncharted territory.”

The Los Angeles Times (12/17, Puzzanghera, Lee) reports that Yellen “emphasized that Fed policymakers would move slowly with future rate hikes to avoid stifling economic growth,” saying, “I think it’s important not to over-blow the significance of this first move.”

Reuters (12/17, Schneider, Lange) notes that Yellen said the Fed was not seeking to discourage consumer spending or business investment, and stressed that interest rates remain low. Said Yellen, “Policy remains accommodative. … The US economy has shown considerable strength. Domestic spending has continued to hold up.”

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